Pakistan no longer an attractive investor destination?

ANALYSES & COMMENTS BY BR RESEARCH

ARTICLE (October 22 2009): Owing to a variety of factors, Pakistan is said to be becoming an increasingly unfavourable spot for manufacturers. According to a UNDP study, Pakistan – despite being a cotton producer – fares badly in Asia Pacific region’s textile exports compared to Bangladesh which does not even produce cotton.

The reason is quite simple: labour cost is only 23 cents/hour in Bangladesh whereas in Pakistan labour costs around 41 cents/hr, according to another study. Like wise, energy cost in Bangladesh was less than 2 cents/kwh in 2007 whereas in Pakistan it stood at 6.72 cents/kwh – a differential that has increased quite significantly since then.

Taking a cue from some textile businessmen, who have reportedly shifted their manufacturing units to Bangladesh, their counterparts in other industries are also considering moving out. In recent reports, domestic pharmaceutical firms – burdened by high costs amid stagnant prices – have been looking to consider Uzbekistan government’s offer to set up production in their country. In another development, about 1000 Pakistani investors registered themselves in the Ras Al-Khaimah free trade industrial zone.

The biggest concern is that these trends are likely to gather pace owing to a lack of economic competitiveness. According to the latest global competitiveness report, Pakistan failed to improve significantly on any of the basic determinants of its competitiveness. The country was ranked 104; in institution, 89 in infrastructure, 114 in macroeconomic stability and 118 rank in basic and higher education.

While in the short-term, regional expansion may benefit local industries by way of repatriation of profits, but in long term it can have grave impact on the economy: wider trade deficit, trickle down unemployment and dissuading foreign direct investments.

And recent turn of events aggravate these fears; the government’s expensive solution (RPPs) to power shortage and the withdrawal of power subsidies will hurt businesses more – while the hike in global oil prices to its near 9-month high threatens to load another round of inflationary pressure -breaking the camel’s back yet again.

Copyright Business Recorder 2009

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